Attention Under Fire: The Effect of Wartime Public Focus on Israel’s Stock and Exchange Rate

This study examines the impact of public attention on financial markets during the Israel–Hamas conflict, focusing on the TA35 stock index and the Israeli Shekel (ILS) exchange rate over the period October 2023 to April 2025. By distinguishing between global and domestic Google search activity, the analysis investigates whether the origin of attention differentially affects market performance and currency dynamics. Public attention is treated as a real-time proxy for investor sentiment and perceived risk. Methodologically, the study combines Google Trends data with EGARCH(1,1) models to capture both return effects and asymmetric volatility responses. To enhance robustness, Principal Component Analysis (PCA) is applied separately to global and domestic search datasets, generating latent indices that reflect conflict-related and humanitarian narratives. These indices are subsequently incorporated into the empirical models. The findings reveal that global search intensity related to conflict topics exerts a significant negative effect on stock returns and contributes to currency depreciation, reflecting heightened uncertainty and risk aversion. In contrast, domestic search activity is associated with stabilizing or positive effects, suggesting local resilience and confidence. PCA-based models improve explanatory power and confirm that the geographical origin of attention plays a crucial role in shaping financial outcomes. Additionally, the results indicate that attention-driven shocks influence volatility asymmetrically, amplifying downside risk during periods of intensified global concern. Overall, the study contributes to the literature by integrating behavioral indicators into financial risk modeling and providing a novel, real-time framework for assessing how digital attention transmits geopolitical risk into asset prices.